Networks’ Streaming Apps Make Minimal Revenue Impact (For Now)

Game of Thrones
Courtesy of HBO

There’s a growing push by traditional TV companies to launch direct-to-consumer apps and services, with Disney the latest to announce plans. The subscriber numbers for these services are growing nicely, but the contribution they’re making to overall revenues for their parent companies are still pretty marginal — for now.

The first of these streaming services to launch was CBS All Access, which debuted in late 2014 and likely has around 1.5 million subscribers, while stablemate Showtime has around 2 million; CBS has said it expects to have a combined 4 million by the end of the year. HBO Now is out front with more than 3 million subscribers, according to recent reports, and Starz has approximately 2 million subscribers.

Though none of the companies reports revenue from its streaming services directly, we can make some reasonable assumptions and estimates based on their retail prices and the likely percentage taken by platform owners like Amazon and Apple. My guess is that the vast majority of these subscribers come through one of these middlemen, and therefore the TV companies’ cut is quite a bit less than the price paid by the consumer.

Each of these services likely generates less than $100 million per quarter at the moment, though HBO Now is rapidly approaching that mark. Three of the four are still under $50 million per quarter. To put that in context, HBO Now likely generated around 5%-6% of HBO’s revenue and 1% of parent Time Warner’s revenue in the second quarter.

CBS All Access was at around 1% of the CBS Entertainment segment’s revenues in the quarter, while Showtime was a more meaningful contributor, at around 10%, of the Cable Networks segment. At Lionsgate, meanwhile, Starz streaming likely generated around 7% of all Media Networks revenue. So none of these streaming services is yet over 10% of company revenue, but they are making increasing contributions.

And more and more, those contributions are important when it comes to revenue growth. For CBS’ Cable Networks segment, streaming likely accounted for nearly all its year-on-year revenue growth in the second quarter. HBO’s total revenues in the second quarter of 2017 were just barely up on a year earlier, but streaming revenue was up $50 million — almost five times the company’s total rate of growth — meaning that HBO Now’s contribution more than offset the decline in the rest of the business.

At a time when there are growing threats to the cable network business due to cord cutting and online-native streaming services, TV companies’ direct-to-consumer offerings will be an important bulwark against revenue shrinkage.

Jan Dawson is the founder and chief analyst at Jackdaw Research, an advisory firm for the consumer technology market.

Correction: A previous version of this story stated the author’s estimate that Starz had a “little over 1 million subscribers”; the company announced in August that its streaming service had reached approximately 2 million subscribers.

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